An underfunded pension plan has forced the City of Midland to take corrective action with the state.

The City of Midland has three defined-benefit retirement plans. Two of those, the Retiree Health Care and Public Act 345, Fire Fighters and Police Officers Retirement Act, are in good shape according to state officials. But, the third, the Municipal Employees' Retirement System of Michigan (MERS), has been determined to be underfunded.

"Every defined benefit plan, the employer is required to submit an annual report to the Department of Treasury. This report includes very specific information from the city's audit report, which the state also has as well as the actuary's report. From that, the state determines the funding status of each plan," Assistant City Manager David Keenan recently reported to City Council.

The state breaks down the plans into two categories: OPEB (Other Postemployment Benefits) and pension plans. The Retiree Health Care is considered an OPEB plan while the Act 345 and MERS are determined to be pension plans.

"A threshold for determining underfunded status for OPEB is less than 40 percent funded and your annual requirements are greater than 12 percent of the local unit's governmental fund revenue funded requirement," Keenan said. "The Retiree Health Care plan is not considered underfunded."

On the pension side, if the threshold is less than 60 percent and the combined actuarial contribution from both of the plans is greater than 10 percent of the local body's governmental fund revenue, then the plan is considered to be underfunded.

The city's Act 345 is considered funded. But, the MERS plan, at 55 percent, is consider an underfunded plan, requiring the city to undergo additional corrective steps.

The Retiree Health Care is at 52 percent and the Act 345 is in the mid 70s.

For the MERS plan, the city was required to submit an Application for Waiver in March, which was denied.

"If it were approved, then we could avoid submitting a Corrective Action Plan (CAP). To be fair, most requests submitted to treasury were denied," Keenan said.

So, it was onto submitting a CAP, which the city council approved in late October by a 5-0 vote.

"The CAP, it shows the measures that have been taken, benefit reductions, employer contributions, increased employee contributions and plans we might consider in the future," Keenan said.

The CAP is then reviewed by the Municipal Stability Board (MSB) to determined it is designed to remove the underfunded status.

"The question is, 'Will the MERS plan get healthy enough, soon enough for them?' I think the answer is probably, 'yes.'"

If the MSB rejects the CAP, city officials would receive very specific reasons why and give the city 45 days to respond and six months to begin working toward a resolution.

Councilwoman Diane Wilhelm Brown asked if the city would meet the 60 percent threshold over the next five years.

"We hope so," Keenan stated. "There are a lot of variables there. It's going to be a challenge."